Australia Defines Transfer Pricing Rules for Business Restructuring

The Australian Tax Offices (ATO) has set out new rules on transfer pricing for business restructuring by multinational enterprises. The ruling defines ‘business restructuring’ as arrangements of multinational enterprises by which functions, assets and /or risks of a business are transferred between jurisdictions.

The rules addressed both simple and complex cases including:

• A simple transfer of ownership of an intangible asset,
• A multi-faceted product supply chain restructure, etc.

The ATO requires a documented business case for the restructure explaining its commercial rationale, both from a group perspective and also showing how it affects the Australian entity and to ensure its benefits. Proper documentation evidencing the arrival of an arm’s length price for the restructure and post-restructure arrangements must also be maintained.

The ruling focuses on three main types of dealings:

• a transfer of property
• a supply of benefit and
• Whether a tax payer, viewed as an independent party, would have a right to compensation for termination of its existing arrangements

Permanent establishment issues arising from business restructuring are however not addressed in this ruling. It only applies to the application of the transfer pricing provisions and does not address the application of other provisions in the Australian tax law that may be relevant in the facts and circumstances of a particular business restructuring arrangement.

The rules permit adjustment to a taxpayer’s profits where the conditions of the taxpayer’s commercial or financial relations with an associated enterprise in respect of a business restructuring differ from those which would be made between independent enterprises dealing wholly independently with each other and results in profits not accruing to the taxpayer that would otherwise have accrued.

This Ruling considers situations where such transfers occur between MNE members to implement changes in the MNE’s existing business arrangements or operations. Business restructurings also commonly involve the transfer of the ownership and management of intangibles such as patents, trademarks and brand names.

Disclaimer :

Published: June 21, 2011. The information provided on this page is intended merely to highlight issues for general information purposes only. It is not comprehensive nor does it provide legal advice. Any information is subject to change without notice. No liability whatsoever is accepted by Nair & Co.